Friday, July 15, 2011

Economic Panic is Just Around the Corner...And 10 Ways to Get Ready

How's your financial life these days? If you are like many people, it was a Hell of a lot better five years ago. So while the economy teeters on collapse (or should I say upheaval?), have you put yourself in a position to survive the coming turmoil?
Nearly eight months ago, we embarked on a grand experiment. The idea was to sell the house, sell basically everything we owned, "retire" so to speak, and travel. From this we have learned a number of lessons:

We were fortunate to sell our house while the equity was still there. Since we sold it, the value has dropped another $20,000. Yikes.

We are debt free. I can't stress this enough--if you have absolutely zero debt you can survive just about anything. If you are saddled with tens of thousands of dollars of debt you will be in a poor position to ride out any sort of economic storm.

We don't own a home. So besides being debt free, we have no other bills either (no water bill, cable bill, electric bill, etc). Our only bills at this point is for a small storage shed for the things we kept, an annual health insurance premium, and monthly pre-paid cell phones.

We have money in savings. We occasionally dip into savings for some things but we never let our emergency fund dip below a certain amount. In other words, our spending habits have totally changed and we no longer look at spending as something we can do without thought.

Traveling is one way to limit what you buy. Since we only buy what we can add to our backpacks, the number of things we buy is severely limited. Basically this reduces our shopping to food and the occasional coffee shop visit.

Traveling also cuts down on many other expenses: since we don't go to work, there is no need for a work wardrobe, since we aren't around our social group there is no peer pressure to but the latest designer items or a boat to keep up with our friends. We no longer eat out daily, there are no gift pools to contribute to, our taxes will be so low this year we will probably be audited because it is so drastically lower than any year in the previous few decades, and our gas expense are significantly reduced as well (the people we have stayed with have all had extra cars for us to borrow but we still pay for gas).

As we have been traveling, we have been staying with friends and relatives. Fortunately that means our expenses for lodging have been zero (for nearly eight months!). We buy food, we offer our services to the people we stay with in a variety of ways (the spouse usually cooks every day which really helps out people who would otherwise eat out like we used to do when we had busy working lives and I've done taxes, home repairs, computer repair, and other odd jobs to help out the people we have been staying with) and we have otherwise been pleasant house guests.

We have learned a lot doing this: communal living is a great way to share expenses (communal living can also be pleasant or horrible depending on your temperment and the temperment of the people you are staying with so a good fit is necessary). Sharing cooking, food, and housework is also a great way to save expenses and the amount of work you have to do by yourself.

Our experiment has had the unintended side affect of causing nearly everyone we have stayed with to reevaluate their financial position, if not their entire lifestyle. Most have decided that downsizing significantly in the near future is now in their plans.

So...the ten rules for surviving financial disaster are:

BE DEBT FREE!!!

Have an emergency fund.

Stop spending! Always look for free ways to get what you need. If something you need can't be found for free consider Dollar Stores, thrift stores, CraigsList, garage sales, and generic store brands. I haven't paid retail in ages and hope never to do so again.

Reduce your living expenses to the bare minimum. Obviously most families can't simply sell their house and move in with relatives but many people can downsize considerably. One lady we stayed with had a 5000 square foot house, three cars, and over five hundred pairs of shoes, all for one person! NOBODY needs that much stuff!!! I would rather own a travel trailer on 1/5th of an acre than have a huge house with a huge mortgage and giant bills each month for water/sewer/garbage/heating/air conditioning/etc.

Have multiple sources of income. As the debt ceiling talks continue, I could have been in a very precarious position of relying on a military pension and Social Security. Fortunately I have a half dozen other sources of income as well (all small but steady income streams) which, due to the fact that our living expenses are so extremely low, that should my main sources of income stop, we won't end up truly destitute (but I will certainly miss being able to bank all of that extra cash!).

Have a stockpile of critical items that could come in handy in the future. Gold is nice to have, firearms and ammo are also good to have. If you have a family, a fairly good stockpile of food is important, tools can also be useful to you and can be used for barter items as well.

Learn all you can. Some people lose their job, sit home, get depressed, and stare at the TV or computer all day. What a waste of time. The person who will survive an economic or social catastrophe is the person who has the widest range of skills. Your spare time, aside for hustling for work, should be spent learning. The library and internet are excellent sources of free information and can be used to teach you everything from how to glean wild edibles to how to snare, dress out, and cook a rabbit--skills which will make it so you won't starve if worse comes to worst.

Make radical changes. At the end of last year, my largest client went under. Now I could have panicked, started searching for other clients to make up the short fall, or otherwise kept going on with my cushy life until things totally fell apart or I could make a radical change. Radical change is scary. It is also socially weird to all of your friends and family. Fortunately, having been inspired by other people who had also made radical changes in their lives (one family sold everything and biked from the North Pole to the southern-most tip of South America, another man sold everything, moved across the country with $3000 in his pocket, and started an online business from scratch which now nets him thousands a month) we decided to be radical and give it a shot (the spouse at first though I had lost my mind but is now rather taken with our new lifestyle).

An attitude change is required as well. Even though money and emotional problems are what most people cite as being the result of our current economic situation, the largest problem standing in your way in changing circumstance is often your attitude. The attitude of "I hate this because this is different/worse than what I am used to" or the attitude of "I used to be a six figure earner and now I can't even get an interview so I am worthless" are a waste of time. As my grandmother (who weathered everything from the Depression to the sudden death of her husband when she was 17 years old and had a newborn baby) used to say, "this is the situation you have to work with, stop thinking about what you had before and stop feeling sorry for yourself. Now get out there and get busy!" Needless to say, if we ever told grandma that we were bored, pitiful, or otherwise unhappy, her cure was work..it usually involved a hoe or an ax or a lawnmower.

Finally, know that this too will pass. The Revolutionary War was a dark time for our country but we rebounded, the Civil War was similarly horrible depending on where you were, the Depression was certainly challenging for most, and World War II was no picnic either but after each of these challenges came renewal and better days.

7 comments:

I agree with being debt-free, unfortunately, the current system we have is rewarding those who run up huge debts and then default on them. While WE who are responsible and practical with our money save for a rainy day, the leeches grow fat on our tax dollars they manage to fraudulently get from the system. They'll probably end up in a better situation than we will, that's the really sad part.

Anon--I agree that a big part of the problem is just as you said, people running up debt then defaulting and those who rely on other people's tax dollars to support them. When total economic collapse occurs and these people only know how to live on credit or government checks then I think they will be SOL (I'm referring to people on welfare. Unfortunately the government has been such a poor manager of Social Security and military pensions that these people who rely on government checks but have paid their dues will unfortunately be affected as well).

Couldn't agree more with you on the debt-free issues you bring up. I'm unemployed at the moment, but I did something like your solution before I lost my job. Rather than traveling I purchased a foreclosed house that was livable and moved in. I am slowly improving it. The first winter was wood heat and space heaters only. I had a few pipe freezes but they never burst and I supplemented heating as that occurred.

During one of the freezes I had the first feeling of freedom that I'd had in my entire life. I was working contract work at the time. I told my boss that we lost power at the house and that I would have to miss work for a few days because if I didn't run a kerosene heater that my pipes would freeze and cause thousands of dollars of damage. He tried to pull some sort of power play on me telling me that I must be at work each day. I told him that was not an option. That I owned the house, did not have any family or friends in town and that it was not worth coming to work when I was incurring thousands of dollars of damage at home. I told him that I liked the job but it wasn't losing that much just to earn money each day. He backed down and for the first time in life I realized that I finally had control over if and when I worked.

As to your anonymous poster, I sure hope they're talking about the businesses that can borrow enormously and then know that our government will bail them out. Because if so, they're right. But if they're referring to those who borrowed too much on houses while being encouraged by realtors and banks then they're focusing on victims and not on the system that fucked those victims. To believe that people who borrowed too much and were foreclosed on, or borrowed too much on credit cards and defaulted then they really need to talk to a credit counselor about how those people are trying to survive today. Many of those people can't even rent a house now. They won't be able to buy a house again for at least a decade and maybe more. And they can't go bankrupt anymore and write off the debts as that was killed off at the end of the last Bush presidency.

People can't just default anymore. They will be chased by creditors for years and they will not be living the high life. It's easy to try to believe that others in our own social stratus are living better off of the system, but that's usually just bullshit piped out from news radio. Talk to real people. Talk to liturgy in poor neighborhoods. Talk to credit union employees. The myth of the poor living rich on the back of the working poor and middle class is just that...a myth.

Diggity--You're right--a guy with a few grand in the bank and a tiny, old, super cheap house really does have more power than a guy with a mansion and a huge mortgage. And many people lived way beyond their means during the 1980s thru mid 2000s, including myself. If my grand dad would have been alive during that time seeing how I was using credit, buying a huge house that really was unnecessary, and having more than a half dozen cars in the driveway just because I could--well lets just say he was probably rolling over in his grave at the time. Unfortunately, it takes a drastic economic mess like the Depression or current economic situation to teach an entire generation and the following generation about responsible money management (also unfortunately, by the third generation after that people have forgotten these crucial lessons!).Anon--Our storage unit costs $55 a month for a 5'x15' unit (got a deal on it from a friend) and the only stuff we kept were the things that would be absolutely necessary to start over again in a tiny house (bed, two flat screen TVs, an Ikea futon/sofa thing, a few antiques, gun safe and firearms, backpacking gear, and some tubs of personal things). Never again will I buy and furnish a huge house (selling off all of your stuff for pennies on the dollar really shows you what all of the crap you pay top dollar for is worth!).